International Logistics Crisis: Understand the impact of the 'crisis at sea' for agribusiness.

All maritime routes were impacted by this crisis, some before, others after. The first impacts were delays and lack of space on ships, followed by a lack of containers, and it didn't take long for this to be reflected in prices. At the end of 2020, shipowners began to update their offers, but it was in 2021 that this increase hit the market hard. To get an idea of this impact, some of our most frequent routes had surprising increases, such as in the case of Santos x Tunis where the increase in freight was more than 70%, on the India x Santos route the increase reached 150% and, in exports from Brazil to Latin America, especially to Peru, Colombia and Ecuador, the scenario worsened in 2021 where the backlog (accumulation of cargo) with shipowners only increased. Ships operated on average above 160% of their capacities and shipowners frequently reviewed the GRI (General Rate Increase). Each month there was an increase of USD 500 to USD 1,000 in freight to the Americas in order to try to bridge the gap between the high volume of cargo demanded and the reduction in ship and container offers. These excessive increases made it difficult to balance the price of commodities, which, after a period of increase, seemed to seek a decrease, but without success, as freight rates rose more than the correction in the price of products.

All routes were affected in this global logistics crisis, but according to Ian Petersen, General Manager at Bulkhaul Brazil, two stood out: the North American and Asian routes, with China being the main route, which ultimately generated the global imbalance. According to Ian, in addition to these factors mentioned, there is the impact that the pandemic had on port services, which are equally important for the production chain. He argues that “it is not just the lack of ships or containers, but the “stay at home” port terminals, forklift drivers, truck drivers (the back-end infrastructure had a decline in available labor) not keeping up with the increase in demand for these services as important as ships and containers”.

“I think few people had any idea what was coming, otherwise they would have prepared better. The world expected a generalized slowdown, but what we have seen is an increase in the consumption of material goods due to budget surpluses due to a reduction in service consumption.”, says Marcelo.

On the other hand, shipowners are taking advantage of this moment in the market to correct offers, capitalize and update their fleets, remembering that for some time now there has been this movement among maritime giants to join together, leaving the market with less and less competition, as mentioned Jean Albuquerque, Latin America General Manager at Den Hartogh Logistics: “It was something announced, they removed services in 2020, placed ships and containers for scrap (disposal), consolidated routes with other shipowners and as it is an oligopoly, demand is restricted and freight rates increased due to lack of competition”.

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Other partners understand that this is an important time to reduce profits in order to maintain their operations. Ian says that at times it is necessary to endure these bottlenecks with reduced profits to maintain balance, as costs have increased exponentially for everyone involved.

In some cases, we even see a modal change, as already mentioned by our partners Marcelo and Jean, from sea to road; change of packaging, etc.

It is also important that shipment schedules are adhered to to ensure solidity for future negotiations with shipowners.

“Plan and schedule your operations and be close to your partners. It is also worth complying with the reservations submitted to shipowners, as stability and constancy are highly regarded.”, highlights Renata.

According to most of our interviewees and market information, a quick recovery in international logistics is not expected. The bets are only for after the second half of 2022, but there is no common vision between the different market players. What we observe is a consensus that freight prices tend to stabilize. All this chaos generated should not be resolved in the short term, as it depends on time-consuming initiatives such as expanding ports, manufacturing larger ships and investing in infrastructure. Another point is that for the logistics sector, the Brazilian market represents only 1% of global container movement, so we are no longer the preferred route for shipowners, who in turn prefer the northern hemisphere, which is more profitable.

The market is increasingly interdependent and sensitive to changes, we were able to observe this relationship with strikes, lockdowns and climatic factors in certain regions that had global impacts, for example, the blockage of the Suez Canal that made the logistics crisis that we were already facing more serious. A positive point at this time is mass vaccination, which has been essential to contain restrictions and the lack of labor at ports and terminals, relieving logistical pressure.

In short, all the uncertainties experienced in the last two years have led companies in the international sector to look for new alternatives to renew themselves and adapt to the adversities caused by international logistics: such as opening markets that were previously little explored, replacing products and searching for new suppliers. and/or commercial partners and alternative routes. Citing some examples, our customers sought new suppliers in different countries, and this phenomenon could also be seen in other areas, such as replacing transport modes (such as rail, road and even replacing shipments in bulk containers) to avoid inflated freight rates. on some routes. In the face of these turbulences and in a scenario of so much uncertainty, the strategies recommended to importers and exporters are to plan stocks and advance their sales to guarantee shipment, in addition, to seek alternatives such as opening new markets on routes less affected by the shortage of containers. in order to expand business possibilities.

Per: Aboissa Commodity Brokers | Essay: Aboissa Soft Oils Team | Revision: Aboissa Oleochemical Products Team

Contribution and Thanks: Renata Coelho – Operational Director of Columbus Logística Internacional, Matias Olmed – Customer Sales Executive of Inter-Tank Logistic Group, Jean Albuquerque – Director of Den Hartogh, Bulkhaul Brasil, Felipe Vasconcellos – CEO of Isis Transportes e Terminais, André Rufatto – Director of Rufatto Transport and Logistics and Marcelo Schaeffer – Business Director at Manuport Liquids do Brasil